Question

Draco Company charges a selling price of $25 per unit for its single product, incurs variable costs of $17 per unit, and total fixed costs of $140,000. What sales volume is necessary to earn a net income after tax of $36,000, assuming a tax rate of 25%?

a. 17,500
b. 21,500
c. 23,500
d. 32,000
e. None of the above

Answer 1

c. 23,500

Step-by-step explanation:

The formula for determining target sales volume is shown below:

target sales volume=fixed costs+ target net income before tax/contribution margin per unit

fixed costs=$140,000

target net income before tax=$36,000/(1-25%)=$48000

contribution margin per unit=selling price-variable cost=$25-$17=$8

target sales volume=($140,000+$48000 )/$8

target sales volume=$188,000/$8

target sales volume=23500